Gross international reserves hit record $109.8 billion

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) built up the country’s foreign exchange reserves to a record $109.8 billion in 2020 in a bid to soften the impact of the coronavirus pandemic on the economy.

Preliminary data released by the central bank yesterday showed gross international reserves (GIR) rose 25 percent last year from  $87.84 billion booked in end-2019.

The end-December GIR was also 4.7 percent higher than the end-November level of $104.81 billion.

“The latest GIR level represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks,” the BSP said.

The central bank said the month-on-month increase in the GIR reflected inflows mainly from the BSP’s foreign exchange operations and national government’s foreign currency deposits with the BSP of proceeds from its issuance of global bonds.

The Philippines returned to the offshore debt market, raising $2.75 billion from the sale of dollar- denominated funds to boost the government’s war chest against the impact of the COVID-19 pandemic.

This followed the $2.35 billion dual tranche global bond offering in May as well as the 1.2-billion euro bond offering in January.

The BSP also traced the increase in the country’s foreign exchange buffer to the revaluation gains from its gold holdings due to the increase in the price of gold in the international market.

The value of the central bank’s gold holdings surged 44.8 percent to $11.6 billion in end-2020 from $8.01 billion in end-2019.

The BSP’s Monetary Board decided to shift to active gold trading instead of being passive because of the change in the price dynamics of gold. The price of gold topped $2,000 an ounce to reach new record levels but has since corrected to $1,860 an ounce.

According to the BSP, the inflows last year were partly offset by the payments by the national government of its foreign currency debt obligations.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

According to the BSP, the buffer is equivalent to 11.7 months’ worth of imports of goods and payments of services and primary income as well as also about 9.6 times the country’s short-term external debt based on original maturity and 5.5 times based on residual maturity.

Like most central banks, it holds international reserves to provide a standby supply of foreign exchange for instances when foreign exchange holdings of domestic commercial banks temporarily fall short of the total demand from the private sector and the national government.

The BSP said the more than 11 months worth of import cover is way above the perceived doctrine of only three months worth of imports.

For his part, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the GIR could still post new record highs in the coming months in view of the sustained gains as the economy reopens further, and the start of the roll out of COVID-19 vaccines.

“GIR could also post new record highs in view of more proceeds of foreign borrowings and other fund-raising activities by the government especially for various COVID-19 programs, including for COVID-19 vaccine purchases, and by the private sector that entail foreign investors in the coming months amid near record low interest rates/financing costs that make borrowings more attractive,” he said.

Ricafort also cited the continued growth in the country’s business process outsourcing (BPO) sector amid the need for greater outsourcing worldwide in able to make global businesses more competitive amid COVID-19 challenges.